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Question

Difficulty: EasyInitial Premium and Premium Receipts

On October 10, a client meets with an insurance producer to fill out a life insurance application. The client submits the first premium payment at this meeting and receives a conditional receipt. The insurer requires a routine medical exam, which the client completes on October 15. Tragically, the client dies in an accident on October 18 before the policy is issued. On October 22, the home office receives the exam results and determines the client was insurable as a standard risk. Based on the rules governing conditional receipts, as of which date did the life insurance coverage become effective?

  1. A
    October 10
  2. B
    October 18
  3. October 15Answer
  4. D
    The policy never became effective because it was not delivered prior to death

Answer

October 15
Under a conditional receipt, when the initial premium is paid with the application, coverage becomes effective on the date of the application or the date of the required medical exam, whichever is later. Since the medical exam was completed on October 15 and the applicant was ultimately deemed insurable, the coverage was retroactively in effect on October 15.

Step-by-Step Solution

1
Identify the type of receipt issued.
A conditional receipt was issued when the initial premium was paid on October 10.
The receipt type determines the rules for when coverage officially begins.
2
Determine if a medical exam was required and when it occurred.
A medical exam was required and completed on October 15.
For a conditional receipt, the effective date is the application date or the medical exam date, whichever is later.
3
Evaluate the outcome of underwriting.
The applicant was found insurable as a standard risk.
The conditional receipt only provides retroactive coverage if the applicant meets the standard underwriting requirements.
4
Determine the effective date based on the later of the application or exam.
The medical exam on October 15 is later than the application date of October 10, establishing October 15 as the effective date.
Because coverage was in effect on October 15, the insurer is liable for the death claim on October 18.

Key Concept

Conditional Receipt Effective Dates
Estimated Time:1m 0s
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Topics

Initial Premium and Premium Receipts

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